2018 (12) TMI 1514 - AT - Income Tax

TDS u/s 194C - Non deduction of TDS u/s 40(a)(ia) - freight and loading / unloading charges - Held that - There is no dispute about the assessee being engaged in transport and handling services. It admittedly made the impugned freight and loading / unloading charges to four parties M/s Jai Gopal Pariwahan, Cargo Liners Pvt. Ltd., Jagannath Enterprise and R.M. Logistics. This what has made both the lower authorities to invoke sec. 40(a)(ia) to disallow the twin payments on account of non-deduction of TDS. CIT-DR vehemently contends during the course of hearing that the assessee has made the impugned payments u/s 194C as contractual expenses & therefore, it ought to have deducted mandatory TDS thereupon. He strongly supports both the lower authorities action invoking the impugned disallowance. No reason to concur with Revenue s above vehement contentions. The CIT(A) s above extracted detailed reasoning makes it clear that he has nowhere concluded that the assessee s payees had ever made themselves liable for its freight or loading / unloading responsibilites nor there is any material on record indicating the assessee to have passed on any of its contractual liability to the four payees thereby treating them as sub-contractors inviting sec. 194C TDS deduction. The appellant was not liable to deduct TDS u/s. 194C(1) for payments made to the outside parties and consequently the disallowance made u/s.40(a)(ia) by the authorities below are deleted We adopt the above detailed reasoning mutatis mutandis to conclude that both the lower authorities have erred in invoking the two disallowance(s) under challenge u/s 40(a)(ia) of the Act. The same are accordingly deleted. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of freight charges due to non-deduction of TDS.
2. Disallowance of loading/unloading charges due to non-deduction of TDS.

Issue-wise Detailed Analysis:

1. Disallowance of Freight Charges Due to Non-Deduction of TDS:
The assessee contested the disallowance of ?11,68,46,218/- in freight charges based on non-deduction of TDS. The CIT(A) noted that the Finance Act, 2009 clarified that tax need not be deducted if the payees furnished their PANs. The Assessing Officer (AO) disallowed the payments made between 01.04.2009 and 30.09.2009 to four transporters (Jai Gopal Pariwaahan, Cargo Liners Pvt Ltd, Jagannath Enterprise, and R.M. Logistics) under section 40(a)(ia) of the Income Tax Act, 1961, as TDS was not deducted. The assessee provided Form 26A from a Chartered Accountant, claiming that the payees included the receipts in their income returns and paid taxes. However, the CIT(A) found that three payees did not file returns, and for R.M. Logistics, the return was filed online but not verified (ITRV not forwarded), rendering the return non-est. Even if the return was considered valid, it was filed beyond the due date under section 139(1), leading to disallowance under section 40(a)(ia).

2. Disallowance of Loading/Unloading Charges Due to Non-Deduction of TDS:
The assessee also contested the disallowance of ?10,87,385/- in loading/unloading charges due to non-deduction of TDS under section 194C. The AO disallowed these payments to the same four parties mentioned above under section 40(a)(ia). The CIT(A) upheld the disallowance for the same reasons as those given for the freight charges.

Tribunal's Analysis:
The Tribunal noted that the assessee was engaged in transport and handling services and made payments to the four parties without deducting TDS. The CIT-DR argued that the payments were contractual expenses under section 194C, necessitating TDS deduction. However, the Tribunal found no evidence that the payees were liable for the assessee's contractual responsibilities or were treated as sub-contractors. Citing a coordinate bench decision in Bhail Bulk Carriers vs ITO, the Tribunal concluded that hiring ships for business use does not constitute a contract for carrying out work under section 194C, and thus, no TDS was required. The Tribunal adopted this reasoning to conclude that the lower authorities erred in invoking disallowances under section 40(a)(ia).

Conclusion:
The Tribunal deleted the disallowances of ?11,68,46,218/- for freight charges and ?10,87,385/- for loading/unloading charges, allowing the assessee's appeal. The order was pronounced on 26/12/2018.